Property development and GST

There are many Goods and Services Tax (GST) implications for property development businesses and, without a good working knowledge of these implications, you may find yourself in a tricky situation.

Under the GST Act, an entity is liable to pay GST on ‘taxable supplies’ that it makes, and it is entitled to input tax credits for its ‘creditable acquisitions’. In other words, you are entitled to pay GST on your income/revenue and you are also entitled to a refund of GST on your acquisitions/purchases.

For each tax period (normally three months or a quarter), the amount of GST you must pay for the revenue your business has generated is offset against the credits you are entitled to receive based on the business purchases you have made. The net amount is the amount that you must pay to the ATO (or which the ATO must pay to you) for that period.

In some cases, adjustments may be required from prior periods.

Simple enough?

Not quite.

GST only applies to certain types of revenue and certain types of purchases, rather than all of them. You need to know which is which in order to ensure that you clearly understand your GST liability.

Input taxed supplies are one exception, with the most common example being the lease of a residential property. In this case, no GST is payable on rental income earned. Similarly, no credits are available for any purchases that are related to earning that income (such as renovations).

Additionally, some purchases can be wholly creditable (meaning you can claim all of the GST charged), partly creditable (you can claim part of the GST charged) or not creditable (you cannot claim the GST). This depends on whether the entity has a ‘creditable purpose’, meaning whether, and to what extent, the purchase was made in order for you to run your business.

As you can see, there are many considerations when it comes to GST.

Other issues that you need to understand are:

  • Do you need to register for GST and if so, when?
  • How do business losses affect GST?
  • What concessions are there for GST?
  • Can you avoid the GST pitfalls?
  • When should you consider cancelling your GST?

Our following series of articles will answer all those questions for you.

As a property developer, it’s essential to be aware of the complexities of dealing in real property and the GST implications of this. In simple terms, you are required to pay GST on your income/revenue once your GST turnover crosses the $75,000 threshold. You are also entitled to a refund on the GST you have paid for relevant purchases.

Keep in mind that the reality is more complex than that, particularly when it comes to changing your development intentions, making the most of concessions and avoiding the pitfalls, so this is an area where professional advice is essential.

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Tony Dimitriadis
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